Prudential 2015 Annual Report Download - page 152

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
Information regarding the policyholder dividend obligation is as follows:
2015 2014
(in millions)
Balance, January 1 .............................................................................................. $6,612 $4,511
Impact from earnings allocable to policyholder dividend obligation ................................................... 137 672
Change in net unrealized investment gains (losses) allocated to policyholder dividend obligation ............................ (2,240) 1,429
Balance, December 31 ........................................................................................... $4,509 $6,612
Closed Block revenues and benefits and expenses for the years ended December 31, are as follows:
2015 2014 2013
(in millions)
Revenues
Premiums ......................................................................................... $2,668 $2,704 $2,728
Net investment income ............................................................................... 2,709 2,809 2,796
Realized investment gains (losses), net ................................................................... 834 1,164 230
Other income (loss) .................................................................................. 23 34 57
Total Closed Block revenues ...................................................................... 6,234 6,711 5,811
Benefits and Expenses
Policyholders’ benefits ............................................................................... 3,366 3,326 3,334
Interest credited to policyholders’ account balances ........................................................ 135 136 136
Dividends to policyholders ............................................................................ 2,130 2,635 1,910
General and administrative expenses .................................................................... 423 444 467
Total Closed Block benefits and expenses ............................................................ 6,054 6,541 5,847
Closed Block revenues, net of Closed Block benefits and expenses, before income taxes and discontinued operations ........ 180 170 (36)
Income tax expense (benefit) .............................................................................. 136 139 (57)
Closed Block revenues, net of Closed Block benefits and expenses and income taxes, before discontinued operations ........ 44 31 21
Income (loss) from discontinued operations, net of taxes .........................................................010
Closed Block revenues, net of Closed Block benefits and expenses, income taxes and discontinued operations .............. $ 44 $ 32 $ 21
13. REINSURANCE
The Company participates in reinsurance with third parties primarily to provide additional capacity for future growth, limit the
maximum net loss potential arising from large risks and acquire or dispose of businesses.
Effective April 1, 2015, the Company entered into an agreement with Union Hamilton Reinsurance, Ltd. (“Union Hamilton”) an external
counterparty, to reinsure approximately 50% of the Prudential Premier®Retirement Variable Annuity with Highest Daily Lifetime Income
(“HDI”) v.3.0 business, a guaranteed benefit feature. This reinsurance agreement covers most new HDI v.3.0 variable annuity business issued
between April 1, 2015 and December 31, 2016 on a quota share basis, until Union Hamilton’s quota share reaches $5 billion of new rider
premiums through December 31, 2016. These guaranteed benefit features are accounted for as embedded derivatives.
On January 2, 2013, the Company acquired the Hartford Life Business through a reinsurance transaction. Under the agreement, the
Company provided reinsurance for approximately 700,000 life insurance policies with net retained face amount in force of approximately
$141 billion. The Company acquired the general account business through a coinsurance arrangement and, for certain types of general
account policies, a modified coinsurance arrangement. The Company acquired the separate account business through a modified
coinsurance arrangement.
Since 2011, the Company has entered into several reinsurance agreements to assume pension liabilities in the United Kingdom. Under
these arrangements, the Company assumes the longevity risk associated with the pension benefits of certain named beneficiaries. In 2014,
the Company entered into a significant reinsurance transaction with a new United Kingdom counterparty. The account value associated
with this transaction was $27 billion.
In 2006, the Company acquired the variable annuity business of The Allstate Corporation (“Allstate”) through a reinsurance
transaction. The reinsurance arrangements with Allstate include a coinsurance arrangement associated with the general account liabilities
assumed and a modified coinsurance arrangement associated with the separate account liabilities assumed. The reinsurance payable, which
represents the Company’s obligation under the modified coinsurance arrangement, is netted with the reinsurance receivable in the
Consolidated Statement of Financial Position.
In 2004, the Company acquired the retirement business of CIGNA and subsequently entered into various reinsurance arrangements. The
Company still has indemnity coinsurance and modified coinsurance without assumption arrangements in effect related to this acquisition.
For the domestic business, life and disability reinsurance is accomplished through various plans of reinsurance, primarily yearly
renewable term, per person excess, excess of loss, and coinsurance. On policies sold since 2000, the Company has reinsured a significant
portion of the individual life mortality risk. Placement of reinsurance is accomplished primarily on an automatic basis with some specific
risks reinsured on a facultative basis. The Company has historically retained up to $30 million per life, but reduced its retention limit to
$20 million per life in 2013. In addition, through December 31, 2014, the Company reinsured 73% of the Closed Block division with
unaffiliated third parties through various modified coinsurance arrangements accounted for using the deposit method of accounting.
Effective January 1, 2015, the external reinsurance arrangements related to the Closed Block division were recaptured.
150 Prudential Financial, Inc. 2015 Annual Report